Prisoner’s Dilemma – Economics –

The theme of climate change has never dominated an election campaign as much as this year. All parties represented in the German Bundestag, except the AfD, agree that Germany’s future also depends on stopping global warming and how quickly it stops. The question remains, however: why only now? The problem has been known for at least three decades, as has the way forward. In fact, however, global greenhouse gas emissions have continued to increase. It is only very recently that the public has realized that it should be one to midnight in climate policy.

When asked who is to blame for the fact that it had to come to this, the answers are very numerous and very simple: to blame, for example, the generation of baby boomers who squandered the resources of the earth and left a destroyed planet to the youth. Capitalism is to blame. Armin Laschet is to blame for withdrawing too late from lignite mining.

If this is all too easy for you, we recommend that you resort to climate economics. In any case, it is a good thing that the Verein für Socialpolitik (VfS), the club of German-speaking economists, is dedicating its annual conference (virtual linked to the crown) next week to climate economics. The keynote speaker on Monday will be William Nordhaus. The 80-year-old Yale University professor should be listened to carefully as he seeks advancements in climate policy. Nordhaus had already warned in an essay in 1975 about the catastrophic consequences of the increasing concentration of carbon dioxide in the atmosphere. He is considered to be the inventor of the “two-degree target,” that is, the attempt to limit the anthropogenic increase in Earth’s temperature to two degrees Celsius. (The Intergovernmental Panel on Climate Change (IPCC) is working to limit the rise in temperatures to 1.5 degrees compared to the start of industrialization. Nordhaus was awarded the Nobel Prize in economics in 2018 .

Since then, the economist has spent a long time considering the question of why global warming continues, despite all the scientific discoveries and despite all the conferences on the climate. He wrote his position in Foreign Affairs magazine last year. The problem, according to Nordhaus, is that the global climate is a common good. Common goods are characterized by the fact that they belong to everyone and can be used by everyone. Other examples are oceans or space. Because it is impossible to exclude one country from the positive consequences of an ambitious climate policy or measures to preserve fishing grounds, there is a great incentive to simply free-ride the climate policy of others. In other words: do nothing yourself and benefit from the progress of others. And because everyone knows it, nothing is happening, or far too little. Germany is only responsible for around 2% of global CO₂ emissions. Even if the next chancellor, whether his name is Olaf Scholz or Armin Laschet, did everything right, it would hardly matter for the global climate as long as the People’s Republic of China built one coal-fired power plant after another. .

Nordhaus describes this in categories of game theory as the “prisoner’s dilemma,” meaning a situation in which cooperative behavior – in particular: ambitious climate policy – is systematically punished. The previous climate agreements, the 1997 Kyoto Protocol and the 2015 Paris Agreement, were doomed to failure because they were voluntary. A government that does not follow the guidelines has nothing to fear except bad press. The result is a “non-cooperative equilibrium of free riders”, which one could freely translate as “Club of climatic parasites”. So long as it remains voluntary, global climate policy will therefore fail, says Nordhaus.

The idea: Anyone not in the climate club should pay a penalty

The solution now is to destroy the free rider business. Nordhaus calls his idea “Climate Club”: states that are ready for a coherent climate policy join forces and make a binding commitment to put a certain price on carbon dioxide, a climate toxin, and then to continuously increase it. . Nordhaus gives an example of 50 dollars for the ferry. In Germany, 25 euros have been in effect since January. According to World Bank estimates, the global average was two dollars last year. Countries that are not members of the climate club should pay a punitive tariff on their exports to member states of the club. Nordhaus expects a five percent inch. This would mean that the incentives to join the club would have to be large enough.

Nordhaus himself admits that it will not be easy to implement his idea, after all, he has been propagating the idea in vain for many years. They would constitute a radical departure from the previous policy, as manifested in the Paris Climate Agreement. It is also unclear what role market power plays in the model. Doesn’t China have a lever to refuse to fulfill its obligations? What if a Donald Trump reigned in Washington again?

The idea of ​​climate clubs does not mean that Germany must abandon a resolute climate policy. This would be necessary because it is the only way to create innovations for a climate neutral future. Despite this, it is time to seriously consider the ideas of the Nobel Prize winner.

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